Lawmakers are questioning SEC Chair Gary Gensler’s decision to classify crypto airdrops as securities. They warn that this could hurt blockchain innovation and economic growth.
SEC Chairman Gary Gensler is under growing pressure from U.S. lawmakers for calling crypto airdrops securities. Lawmakers worry this decision could hurt innovation in blockchain and create extra rules that make it harder for projects using airdrops to succeed. Crypto airdrops distribute free digital tokens to early users of a blockchain project.
SEC Chair Gary Gensler Classifying Airdrops as Securities?
The U.S. Securities and Exchange Commission (SEC) uses the Howey Test to decide if something should be called a security. The Howey Test says a transaction is a security if people invest money in a shared project expecting to make a profit, mostly from someone else’s work.
The SEC argues that even though crypto airdrops are free, they still count as securities and should be regulated as such. For example, the SEC has taken action against several blockchain projects for using airdrops, including a 2022 case against Hydrogen Technology Corporation. The SEC accused the company of offering unregistered securities through airdrops. This position has caused concern in the blockchain community, with many fearing that the SEC’s approach could stifle innovation and decentralization.
Lawmakers Push Back on Gary Gensler’s Stance
In September 2024, two prominent lawmakers, House Majority Whip Tom Emmer, and Financial Services Committee Chairman Patrick McHenry, wrote a letter to Gary Gensler asking for clarity on the SEC’s stance toward crypto airdrops.
They are worried about how the SEC is applying securities laws to free digital assets and whether this approach is right or needed. The lawmakers believe that crypto airdrops are crucial for developing blockchain technology, boosting user involvement, and supporting decentralization. Emmer and McHenry think that by treating airdrops as securities, the SEC is making it harder for blockchain projects to succeed in the U.S. and might stop American users from fully taking part in this technology.
The lawmakers’ key concern is how the SEC applies the Howey Test to airdrops. Since airdrops are given away for free, no money is invested in the transaction, which would seem to disqualify them from being classified as securities under the Howey Test.
Questions to Gary Gensler
In their letter Emmer and McHenry asked if the SEC thinks free digital assets could be classified as securities under the Howey Test, and if so, under what conditions. They also pointed out that rewards like airline miles or credit card points are not considered securities. They asked how the SEC tells the difference between these rewards and crypto airdrops.
Emmer and McHenry warned that the SEC’s approach could harm blockchain innovation. Airdrops are important for supporting decentralization and encouraging people to join blockchain networks. If airdrops are treated as securities, projects might have to follow stricter rules, making it harder for them to grow and succeed.
The lawmakers also worried about the economic impact of classifying airdrops as securities. They asked if the SEC has looked into how this might hurt economic growth and reduce tax revenue. They’re concerned that making it harder for blockchain projects to succeed in the U.S. could push innovation to other countries, causing the U.S. to miss out on opportunities in the fast-growing blockchain industry.
Conclusion:
Gary Genslers SEC is facing increasing pressure from lawmakers over its classification of crypto airdrops as securities. While the SEC argues that these free token distributions meet the criteria of the Howey Test, lawmakers such as Tom Emmer and Patrick McHenry believe that this stance is creating unnecessary regulatory burdens and stifling innovation in blockchain technology. As the debate continues, it remains to be seen whether the SEC will adjust its approach or if further legal and regulatory challenges will emerge.
For the latest updates on the SEC’s stance on crypto airdrops and its impact on blockchain innovation, visit Coin Mozo on X.
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